Volcano Beats, Raises Guidance – Analyst Blog

Volcano reported a record 36% year-over-year increase in revenue’s to $73.5 million from $54.0 million in the year-ago quarter, with growth witnessed across all reporting segments.  Revenues included $6.7 million from Axsun Industrial Segment (acquired by Volcano in late 2008), an increase of 36% year over year. Total revenue surpassed the Zacks Consensus Estimate of $69 million for the second quarter of 2010.

Medical segment’s revenues grew 32% year over year to $66.8 million. The revenue growth was driven by market share expansion and increased penetration of the intravascular ultrasound (IVUS) and functional measurement (FM) markets. On an annualized basis, sales from Consoles  ($10.8 million), total IVUS single-procedure disposables ($40.9 million),  total FM single-procedure disposables ($10.8 million) and Other business ($4.3 million) all grew a respective 16%, 29%, 49% and 93%.

Growth in the Japanese market for IVUS disposables jumped 57% year over year. Japan is the largest IVUS market in the world and the establishment of a direct sales force should allow the company to provide more focused service and support to the market. Meanwhile, the US market recorded growth of 15% in IVUS disposable sales and the Europe and rest of the world (ROW) countries posted a growth of 5% and 53%, respectively. In Japan, FM sales increased a whopping 67% to $0.7 million, with more 50% growth in both the US and Europe and 17% growth in ROW countries.

Gross margin was 63.2% in the quarter as compared with 58.4% in the second-quarter 2009. Excluding one-time items, operating expenses increased 9.1% to $39.7 million. We expect operating expenses to increase in 2010 due to increased spending in Japan, expansion of sales and marketing programs in other geographies, new product launches and spending associated with the planned acquisition.

Increases Guidance

Volcano increased its fiscal 2010 total revenue to the range of $286–$290 million from its prior guidance range of $277–$282 million. The revenue guidance includes $24 million in revenues from Axsun (versus the prior expectation of $17 million).

Volcano expects EPS to be in the range of 5 cents to 10 cents. The Zacks Consensus Estimate was inline with the company’s expectation.

While gross margins are expected in the range of 62–63%, operating expenses should be between 58–60% of revenues. The second half of 2010 should see the company investing money in the development of Fluid Medical technology and also for increased litigation expenses.

The company continues to execute in driving strong top-line growth in the IVUS/FM market thanks to new product launches, product enhancements and support from partners in marketing and distribution agreements. Volcano’s ability to sustain its strong revenue growth appears promising as a result of market share gains, successful execution of its growth strategies and strong R&D emphasis. Moreover, the company’s agreement to acquire Fluid Medical Inc., a developer of advanced catheter-based forward-looking imaging technology would help to enhance the multi modality platform to
survive in this competitive environment.

However, competition remains tough. While Volcano’s primary IVUS competitor is Boston Scientific (BSX), it also competes with Terumo Corporation in Japan. Meanwhile, St. Jude Medical (STJ) is the company’s main competitor in the FM market.